Opinion: Why Obama should OK the Keystone Pipeline

The president could push Republicans into a broader deal that extends his own policies

By

TimMullaney

Writer

Bloomberg

The Gulf Coast Project, a 485-mile crude-oil pipeline being constructed by TransCanada, is part of the Keystone XL Pipeline Project. Keystone will carry mostly oil from existing wells now transported by rail or truck. Environmentally, the difference between the two isn’t much.

For all of Barack Obama’s activism as president, one of his biggest triumphs came when he shut up and did little: He stood aside and let private energy businesses create a boom out of hydraulic fracking, which has slashed natural gas prices by two-thirds and is busily doing the same to oil.

That’s why the president should swallow his competitive instincts and play ball with a Republican Senate taking office Tuesday. Incoming Majority Leader Mitch McConnell has declared that approving the Keystone XL pipeline will be the reconstituted chamber’s first vote. Keystone is part of the oily bridge to the energy future that Obama wants, and he can leverage his acquiescence into other policies that build a future just as Keystone reaches back in time.

This is no particular brief for the Keystone bill (which, in current form, Obama will veto — the amendments Democrats are floating are mostly irrelevant) — and even less for the self-parody of inside-the-Beltway Republican thinking about job creation it represents. The problem with Keystone right now is that it’s built, first and foremost, to shuttle oil from Canadian oil sands to refineries near the Gulf of Mexico. The State Department estimates that oil prices must be $65 to $85 per barrel to make new oil-sands wells economic; private Canadian estimates suggest $95 or more to refine heavy-sands oil into something resembling light, sweet West Texas crude that’s hovering around $50.

There will be no rush of drilling, or U.S. job creation, if the pipeline gets built. In the medium term Keystone will carry mostly oil from existing wells now transported by rail or truck. Environmentally, the difference between the two isn’t much, either.

It’s not Obama’s job to figure out whether the pipeline is economical — that’s up to the private sector.

The fact that Keystone makes no short-term economic sense poses no barrier to McConnell. The GOP’s lobbies (including oil and gas, which donates almost six times as much to GOP campaigns as to Democrats) want it. McConnell has likewise vowed to “go to war” to stop Obama’s climate-change policy on behalf of a coal industry that sustains fewer jobs than the U.S. economy created each week in November, but whose donors favor Republicans 23-1, per the Center for Responsive Politics. If you want to guess McConnell’s economic policy, the last thing you need to know is economics.

But it’s not Obama’s job (or mine, or Greenpeace’s) to figure out whether the pipeline is economical — that’s up to the private sector. Candidate Obama’s 2008 stump speech on energy isn’t notable for its subtle handle on how then-emerging drilling technologies might change things. Keystone owner TransCanada
TRP, -1.00%
says the $8 billion pipeline will be built — with private money. Canadian drillers say they have reserves they can extract for $35 a barrel and up, and TransCanada’s customers are paying more than half the cost. They’re not charities. Attention should be paid.

What’s more, we don’t know what it will cost to extract oil tomorrow. There are a list of new technologies bringing down oil-production costs, so that State Department estimate is writ on water. And when those facts change, elected officials will be among the last to know.

Obama campaigned for a belt-and-suspenders energy policy, encouraging private drilling on private land while other policies nurtured renewables, and it is working splendidly. The proportion of U.S. electricity that’s renewable has doubled to about 13%, coal’s share is down 20%, electric cars are a reality and carbon-emission rules Obama proposed in June will virtually rule out new coal-fired power plants, finishing a phaseout that fracking began. Utility rates are stable and gasoline costs half what it did in mid-2008, with carbon emissions down 14% since 2005.

So double down, already: In exchange for Keystone and other concessions, Obama can leverage Republicans into a broader deal that extends his own policy victories into the future. The ante is McConnell’s agreement to extend help for renewable electricity and electric cars, and laying off challenging the carbon rules, not symbolic, union-inspired Democratic amendments that mandate using U.S.-produced steel and bar exports of oil ferried via a pipeline originating in Canada. Even as a medium-term future with half as much coal use as in 2008 and no explosion in electric rates comes into focus, the U.S. is far from being able to do without new oil sources.

Let TransCanada bet on Keystone — we’ll know soon enough if they’re wrong. Environmentalists may not like it, and investors might lose money (they did after overstaying the natural gas boom in 2012), but giving risk capital room to work is how America’s emerging energy independence got built.

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